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  • District Of Massachusetts Grants Motion To Dismiss Securities Fraud Claims Against Cloud-Based Remote Software Services Company In Connection With Its Acquisition Of A Competitor, Finding Plaintiffs Failed To Plead Material Misstatements Or Scienter
     
    10/13/2020

    On October 7, 2020, Judge Allison Burroughs of the District of Massachusetts granted in full a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a cloud-based remote software services company (the “Company”) and certain of its executives.  Wasson v. LogMeIn Inc., No. 18-cv-12330 (D. Mass. Oct. 7, 2020).  Plaintiffs alleged defendants made materially false and misleading statements concerning the Company’s integration of a newly acquired competitor.  The Court granted defendants’ motion to dismiss plaintiffs’ amended complaint, holding that plaintiffs failed to plead any actionable material misstatements or scienter, but granted plaintiffs leave to amend.
     
  • Ninth Circuit Reverses Dismissal Of Exchange Act Claims Against Bank And Its Executives, Holding Plaintiffs Adequately Alleged Loss Causation For Certain Claims
     
    10/13/2020

    On October 8, 2020, the Court of Appeals for the Ninth Circuit reversed the dismissal of a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, against a federally chartered savings bank and its holding company (collectively the “Bank”) and several of its executives, for alleged misstatements regarding the Bank’s underwriting standards, internal controls, and compliance program.  In re BofI Holding, Inc. Securities Litigation, No. 18-55415 (9th Cir. Oct. 8, 2020).  The district court granted defendants’ motion to dismiss the third amended complaint, holding that although plaintiffs adequately pled material misstatements and scienter, plaintiffs failed to sufficiently plead loss causation.  The Ninth Circuit (with Judge Paul J. Watford writing for the majority) vacated the dismissal, holding that plaintiffs sufficiently pled loss causation based on a whistleblower lawsuit filed by a former employee.  Judge Kenneth K. Lee concurred in part and dissented in part.
     
  • Northern District Of California Allows Certain Securities Fraud Claims To Proceed Against Cloud Services Company, Holding Plaintiffs Adequately Alleged Falsity And Scienter
     
    09/22/2020

    On September 11, 2020, Judge William H. Orrick of the Northern District of California denied a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, against a software company (the “Company”) and two of its executive officers.  Scheller v. Nutanix Inc., No. 19-cv-01651 (N.D. Cal. Sept. 11, 2020).  This case was previously dismissed with leave to amend by Judge Orrick in March, and was covered in our newsletter.  Plaintiffs filed a Second Amended Complaint (“SAC”) in an attempt to cure the prior pleading defects.  The Court noted that the SAC “suffers from many of the same deficiencies as [the] prior complaint” and held that certain categories of allegations were insufficient, but the Court allowed certain claims to proceed.
     
  • Eastern District Of New York Grants Motion To Dismiss Securities Fraud Claims Against Steel Manufacturer Related To Purported Argentinian Bribery Scheme Uncovered In “Notebooks Case” Investigation
     
    09/22/2020

    On September 14, 2020, Judge Pamela K. Chen of the Eastern District of New York granted in full a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a steel products manufacturer (the “Company”) and certain of its executives and former employees.  Ulbricht v. Ternium S.A. et al., No. 18-cv-06801-PKC (E.D.N.Y. Sept. 14, 2020).  Plaintiffs, investors of the Company’s American Depository Shares (“ADSs”), alleged that defendants made materially false and misleading statements and omissions in connection with the purchase of the Company’s subsidiary by the Venezuelan government by failing to disclose the alleged bribery scheme that helped facilitate the transaction.  The Court granted defendants’ motion to dismiss plaintiffs’ consolidated amended complaint, and—although “skeptical” of plaintiffs’ likelihood of success—the Court granted plaintiffs leave to amend.
     
  • Northern District Of California Dismisses With Prejudice Most Exchange Act Claims Against Medical Device Company, Holding Plaintiff Failed To Plead Falsity For Material Misrepresentations And Contemporaneity Requirement For Insider Trading Liability
     
    09/15/2020

    On September 9, 2020, Judge Lucy H. Koh of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative securities class action against a medical device company (the “Company”) and certain of its executive officers under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5.  SEC Investment Mgmt. AB, et al. v. Align Technology, Inc., et al., No. 18-cv-06720-LHK (N.D. Cal. Sept. 9, 2020).  Plaintiff alleged that the Company made false or misleading statements regarding its strategies to curb competition in the market.  Plaintiff also asserted an insider trading claim against the Company’s CEO.  The Court largely granted defendants’ motion to dismiss, holding that plaintiff failed to adequately plead falsity for all but one alleged misrepresentation and, for the insider trading claim, that the trading activities of plaintiff and the CEO were not “contemporaneous.”
     
  • Southern District Of New York Grants In Part And Denies In Part Motion To Dismiss A Putative Securities Fraud Class Action Against An Insurance Company In Connection With Delisting Of Preferred Stock
     
    08/25/2020

    On August 14, 2020, United States District Judge Katherine Polk Failla of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss a putative securities fraud class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 against an insurance company (the “Company”) as well as certain of its officers, who were members of the family that founded the Company and were long-time controlling stockholders.  Martinek v. Amtrust Fin. Serv., Inc., No. 19 Civ. 8030 (KPF), 2020 WL 4735189 (S.D.N.Y. August 14, 2020).  Plaintiff alleged that the Company made false or misleading statements and omissions about whether the Company’s preferred stock would continue to trade on the New York Stock Exchange (“NYSE”) following a proposed buyout of the common stock by the controlling stockholders.  The Court largely denied defendants’ motion to dismiss, holding that plaintiff had adequately alleged scienter and the falsity of two categories of alleged misstatements. 
     
  • Northern District Of California Dismisses Putative Class Action Against Large IT Services Provider
     
    08/04/2020

    On July 27, 2020, United States District Judge Beth Labson Freeman of the United States District Court for the Northern District of California dismissed, with leave to amend, a putative class action asserting violations of Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) against a large IT services provider (the “Company”), certain of its officers, and its largest shareholder.  Costanzo v. DXC Tech. Co., No. 19-cv-05794-BLF, 2020 WL 4284838 (N.D. Cal. July 27, 2020).  Plaintiffs alleged that the Company’s prospectus and registration statement (the “Registration Statement”), issued in connection with the merger that created the Company, mislead investors about the true scale of, and the risks associated with, the Company’s plan to reduce its workforce costs.  The Court granted defendants’ motion to dismiss because plaintiffs failed to allege that the statements in the Company’s Registration Statement were false and because the alleged misstatements were protected by the Private Securities Litigation Reform Act’s (“PSLRA”) safe harbor.
     
    CATEGORIES: FalsityPSLRASecurities Act
  • District Of Massachusetts Dismisses Putative Class Action Against Biopharmaceutical Company For Failure To Allege Falsity
     
    08/04/2020

    On July 24, 2020, United States District Judge Allison D. Burroughs of the District of Massachusetts dismissed a putative securities class action against a biopharmaceutical company (the “Company”) and certain of its executives under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.  Hackel v. Aveo Pharmaceuticals Inc. et al., No. 1:19-cv-10783, 2020 WL 4274542 (D. Mass. July 24, 2020).  Plaintiffs alleged that defendants misrepresented the status of clinical trials of a cancer drug required for approval from the U.S. Food and Drug Administration (“FDA”).  The Court granted defendants’ motion to dismiss because the statements at issue were forward-looking and because plaintiffs failed to allege falsity.
     
  • Second Circuit Affirms In Part Dismissal Of Securities Claims Against Cancer Drug Developer, Holding Certain Alleged Misstatements Inactionable As Corporate Puffery, But Allows Claims Concerning Other Alleged Misstatements To Proceed
     
    07/21/2020

    On July 13, 2020, the Second Circuit affirmed in part and vacated in part the dismissal of Exchange Act claims against a pharmaceutical company (the “Company”) and certain individual defendants in connection with alleged misstatements regarding the efficacy of its pancreatic cancer drug, the design of the Company’s clinical trial, and the scientific literature concerning pancreatic cancer.  Nguyen v. NewLink, No. 19-642 (2d Cir. July 13, 2020).  The Second Circuit held that while some alleged misstatements were inactionable puffery, others were statements of opinion as to which, under the United States Supreme Court’s decision in Omnicare, plaintiffs adequately pled falsity.  The Second Circuit also held that plaintiff sufficiently pled loss causation.
     
  • District of Massachusetts Dismisses Purported Class Action Against Online Home Goods Retailer
     
    07/14/2020

    On July 8, 2020, United States District Judge Douglas P. Woodlock of the United States District Court for the District of Massachusetts dismissed a putative securities fraud class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 against a large online home goods retailer (the “Company”) and its three most senior executives (collectively, “Defendants”).  In re Wayfair, Inc. Sec. Litig., Civ. No. 19-10062-DPW (D. Mass. July 8, 2020).  Plaintiffs alleged that defendants falsely implied that the Company was profitable and that it was experiencing positive advertising-revenue leverage—meaning that the Company was becoming more effective at generating revenue for every advertising dollar spent.  The Court granted defendants’ motion to dismiss because plaintiffs failed to adequately allege any material misstatements or omissions, scienter, or loss causation.  Notably, the Court repeatedly called attention to the absence of factual support for the allegations and described the complaint as “precisely the kind of pleading the Private Securities Litigation Reform Act was designed to prevent.”
     
  • Southern District Of New York Grants In Part And Denies In Part Motion To Dismiss A Securities Class Action Alleging A Biotech Company Mislead Shareholders About Likelihood Of FDA Approval For Drug Intended To Treat Rare Disease
     
    06/23/2020

    On June 16, 2020, Judge Gregory H. Woods of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss a putative securities fraud class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a biotech company (the “Company”) as well as certain of its officers (collectively, “Defendants”).  Skiadas v. Acer Therapeutics Inc. et al., Civ. No. 1:19-cv-6137, 2020 WL 3268495 (S.D.N.Y. June 16, 2020).  Plaintiffs alleged that Defendants falsely stated that the Food and Drug Administration (“FDA”) agreed that it would approve the Company’s New Drug Application for EDSIVO, a drug for the treatment of Vascular Ehlers-Danolos Syndrome (“vEDS”), a rare genetic connective tissue disorder.  The Court denied Defendants’ motion to dismiss as to most of the alleged misstatements, because plaintiffs adequately alleged falsity and scienter.
     
  • Northern District Of California Dismisses Purported Class Action Against Peer-To-Peer Lending Company For Failure To Adequately Allege Falsity And Scienter
     
    06/23/2020

    On June 12, 2020, Judge Beth Labson Freeman of the United States District Court for the Northern District of California dismissed a purported securities class action against a peer-to-peer lending company (the “Company”) and certain of its officers under Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Veal v. LendingClub Corporation, et. al., No. 5:18-cv-02599 (N.D. Cal. June 12, 2020).  Plaintiffs alleged that defendants made misstatements and omissions regarding an investigation by the Federal Trade Commission (“FTC”) into the Company’s allegedly deceptive conduct related to certain consumer practices.  The Court dismissed plaintiffs’ claims (mostly without prejudice), because plaintiffs failed to adequately allege falsity or scienter.
     
  • Northern District Of California Dismisses Complaint Against A Ticketing Platform Provider For Failure To Plead Falsity
     
    05/12/2020

    On April 28, 2020, Judge Edward J. Davila of the United States District Court for the Northern District of California granted a motion to dismiss a putative securities fraud class action based on purportedly misleading statements in the prospectus and registration statement (the “Offering Materials”) filed by a ticketing platform provider (the “Company”) in connection with its initial public offering (“IPO”).  The complaint asserted claims under Sections 11 and 15 of the Securities Act of 1933 and Section 10(b) and 20(a) of the Securities Exchange Act of 1934 against the Company and certain of its officers, and violations of Section of 11 of the Securities Act against the underwriters for the IPO.  In re Eventbrite Inc. Sec. Litig., No. 5:18-CV-02019-EJD (N.D. Cal. Apr. 28, 2020).  In granting the motion to dismiss, the Court held that it could rely on documents incorporated into the complaint by reference to negate conclusory allegations in the complaint and for context, and further held that plaintiffs failed to adequately plead falsity and that the Company, in any event, sufficiently disclosed risks associated with the acquisition.  The Court also held that the heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure applied to the Section 11 claims and that its risk disclosures were sufficient under Item 303.
     
  • Eighth Circuit Affirms Dismissal Of Putative Class Action Against Major American Retailer For Failure To Adequately Plead Falsity And Scienter
     
    04/21/2020

    On April 10, 2020, the United States Court of Appeals for the Eighth Circuit affirmed the dismissal of a putative class action against a large American retailer (the “Company”) and certain of its current and former executives for violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5.  In re Target Corp. Sec. Litig., 2020 WL 1814268 (8th Cir. 2020).  Plaintiffs alleged that defendants made materially misleading statements about problems facing the Company’s Canadian subsidiary (“Canadian Subsidiary”), which filed for bankruptcy less than two years after opening in the Canadian market.  The district court dismissed the action, holding that plaintiffs failed to meet the pleading standards of the Private Securities Litigation Reform Act (“PSLRA”), and denied reconsideration and leave to amend.  The Eighth Circuit affirmed, holding that plaintiffs failed to plead scienter adequately for any of the alleged misleading statements and falsity for some of the alleged misstatements. 
     
  • Northern District Of California Denies Motion To Dismiss Putative Class Action Against Automaker Alleging Misstatements Based On CEO’s Social Media Posts
     
    04/21/2020

    On April 15, 2020, Judge Edward M. Chen of the United States District Court for the Northern District of California denied a motion to dismiss a putative securities fraud class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a designer and manufacturer of electric cars (the “Company”), its co-founder and CEO and its directors.  In re Tesla Inc. Securities Litigation, No. 3:18-cv-04865 (N.D. Cal. Apr. 15, 2020).  Plaintiff alleged that the statements made by the Company’s CEO on Twitter regarding securing funding for a going-private transaction were materially misleading.  The Court denied defendants’ motion to dismiss for failure to state a claim, finding that plaintiff adequately pleaded falsity, scienter, and loss causation.
     
  • District Of Connecticut Dismisses Securities Class Action Against A Consumer Financial Services Company, Certain Of Its Officers And Directors And Its Underwriters, Holding That Plaintiffs Failed To Adequately Allege Any Material Misrepresentations
     
    04/07/2020

    On March 31, 2020, Judge Victor A. Bolden of the District of Connecticut dismissed a putative securities class action against a provider of private label credit cards (the “Company”), certain of its officers and directors, and its underwriters in connection with a notes offering.  In re Synchrony Financial Sec. Litig., No. 3:18-cv-1818 (VAB) (D. Conn. Mar. 31, 2020).  Plaintiffs alleged violations of Section 11 of the Securities Act of 1933 (the “Securities Act”) by all defendants, as well as Section 15 of the Securities Act against the individual defendants.  Plaintiffs also alleged violations of Sections 10(b), 20A, and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”) by the Company and certain of the individual defendants.  The Court granted defendants’ motion to dismiss the Amended Complaint in its entirety with prejudice.
     
  • Southern District Of New York Dismisses Securities Fraud Complaint Against An Insurance Company, Finding That Confidential Witness Statements And Short-Seller Reports Were Not Sufficiently Particularized To Allege An Actionable Misstatement Or Omission
     
    03/11/2020

    On March 2, 2020, Judge Paul A. Engelmayer of the United States District Court for the Southern District of New York dismissed a putative securities fraud class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a foreign insurance company (the “Company”) and certain current and former officers (the “individual defendants,” and collectively, “defendants”).  Long v. Fanhua Inc. et al., No. 1:18-CV-08183 (S.D.N.Y. Mar. 2, 2020).  Plaintiff, who commenced the action on behalf of all persons who purchased the Company’s American Depository Shares (“ADSs”), alleged that defendants failed to disclose certain related-party dealings and that the Company’s stock price declined once those dealings were disclosed to the market.  The Court dismissed plaintiff’s complaint and held that plaintiff’s reliance on uncorroborated short-seller reports was insufficient to state a claim. 
     
  • District Of Delaware Partially Sustains Securities Fraud Case Against Automotive Parts Distributor For False Sales Growth Projections
     
    02/19/2020

    On February 7, 2020, Judge Richard G. Andrews of the United States District Court for the District of Delaware granted in part and denied in part motions to dismiss a putative securities class action against an automotive aftermarket parts provider (the “Company”), certain members of its management (the “Company Individual Defendants”), a hedge fund that owned approximately four percent of the Company’s shares, and the fund’s Chief Executive Officer who was a member of the Company’s board of directors.  In re Advance Auto Parts, Inc., Sec. Litig., No. CV-18-212-RGA (D. Del. Feb. 7, 2020).  Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making misleading misstatements and omissions about the Company’s projected growth and financial condition.  The Court dismissed the claims to the extent it found them to be puffery or lacking sufficient allegations of falsity, but denied the motion with respect to claims based on statements related to projections and opinions regarding the Company’s financial outlook.